The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the rate-setting policies and oversight related to the in-home respite services program (in-home respite services) administered by the Department of Developmental Services (DDS). Californians with developmental disabilities can access services through the State’s network of 21 regional centers, which receive funding and oversight from DDS.

This report concludes that DDS has chosen not to obtain and review information that could assist it in determining whether its hourly payment rates to vendors for providing in-home respite services are appropriate. Specifically, because of its interpretation of certain changes in state law that took effect in 1998 and 2003, DDS has since changed its approach to calculating payment rates and no longer requires vendors to submit cost statements, which detail vendors’ expenses. Rather, DDS currently adjusts the hourly vendor rates based on legislatively approved rate adjustments and changes to minimum wage or labor laws. However, we question DDS’s interpretation of these statutes as negating the need for cost statements, and we believe clarifying legislation is needed because DDS could have been assessing the appropriateness of payment rates based on vendors’ cost statements since 2003.

Further, during the past few years, we found that the statewide weighted average hourly payment rate under what we refer to as the Full Service model, in which the vendor recruits the respite worker and schedules services, increased from $17.76 to $21.21, or by more than 19 percent, while the respite workers’ hourly wage increased from $9.89 to $11.14, or by roughly 13 percent. We also found that, unlike certain other services provided by DDS, in‑home respite services is not subject to an administrative cost cap of 15 percent. Therefore, the four vendors that received over $7 million in revenue for providing in‑home respite services in fiscal year 2014–15 reported a wide variance in terms of their administrative costs. Specifically, the amounts the four vendors reported spending on administrative costs ranged from 12 percent to nearly 30 percent. Without a cap on administrative costs, the State runs the risk that vendors are spending unreasonable amounts on these types of costs.

Finally, for in-home respite services, we identified that regional centers perform minimal monitoring of vendors and that DDS performs limited oversight of the regional centers. For instance, DDS is not ensuring that vendors comply with state and federal requirements and limits its review of the program to its biennial fiscal audits of the regional centers. However, these audits have not been conducted in a timely manner and may not include a review of in‑home respite services at all because it is a smaller program in comparison to others administered by DDS.